Shea Shorts Inc. (SSI) manufactures electrical wiring, which is used in the production of air conditioners and small electronics. Per-metre information is as follows.
$\begin{array} { | l | r | }
\hline \text { Prevailing market price } & \$ 33 \
\hline \text { Direct materials } & 14 \
\hline \text { Direct labour } & 6 \
\hline \text { Manufacturing overhead } & 7 \
\hline \text { Selling and administrative expenses } & 3 \
\hline
\end{array}$ SSI has traditionally used a 20% markup on total cost to arrive at a reasonable selling price. The company, though, has noticed a sizable drop in sales volume during the last few quarters, which it attributes to new entrants in the marketplace.
Required:
A. Compute the current selling price per metre.
B. If management desired to meet the prevailing market price and maintain the current rate of profit on sales, what must happen to the company's total manufacturing costs? By how much?

Question

Shea Shorts Inc. (SSI) manufactures electrical wiring, which is used in the production of air conditioners and small electronics. Per-metre information is as follows.
 $\begin{array} { | l | r | } 
\hline \text { Prevailing market price } & \$ 33 \
\hline \text { Direct materials } & 14 \
\hline \text { Direct labour } & 6 \
\hline \text { Manufacturing overhead } & 7 \
\hline \text { Selling and administrative expenses } & 3 \
\hline
\end{array}$ SSI has traditionally used a 20% markup on total cost to arrive at a reasonable selling price. The company, though, has noticed a sizable drop in sales volume during the last few quarters, which it attributes to new entrants in the marketplace.
Required:
A. Compute the current selling price per metre.
B. If management desired to meet the prevailing market price and maintain the current rate of profit on sales, what must happen to the company's total manufacturing costs? By how much?

Quizplus · Accepted Answer

The Answer of Shea Shorts Inc. (SSI) manufactures electrical wiring, which is used in the production of air conditioners and small electronics. Per-metre information is as follows.
 $\begin{array} { | l | r | } 
\hline \text { Prevailing market price } & \$ 33 \
\hline \text { Direct materials } & 14 \
\hline \text { Direct labour } & 6 \
\hline \text { Manufacturing overhead } & 7 \
\hline \text { Selling and administrative expenses } & 3 \
\hline
\end{array}$ SSI has traditionally used a 20% markup on total cost to arrive at a reasonable selling price. The company, though, has noticed a sizable drop in sales volume during the last few quarters, which it attributes to new entrants in the marketplace.
Required:
A. Compute the current selling price per metre.
B. If management desired to meet the prevailing market price and maintain the current rate of profit on sales, what must happen to the company's total manufacturing costs? By how much?

Shea Shorts Inc SSI Has Traditionally Used a 20% Markup on Total Cost